Today in Paris, European leaders have been brought together by the French government to discuss the year ahead. The top priority for the Group of 20 leading nations this year is to ensure a sustained global recovery that lays the foundations for stronger, sustainable growth. What does this mean for Europe? Addressing global economic imbalances cannot be code for a discussion between America and China, in which European countries are bystanders. On deficits, growth and banks, 2011 is the year Europe must put its own house in order.

This means confronting the difficult issues holding back confidence and growth. The first is continuing market concern about sovereign debt. The sense of crisis may have eased, but wide spreads and high market interest rates still stalk several European economies. We need a comprehensive package early this year to address this. The eurozone must follow the logic of the single currency and stand more convincingly behind the euro.

Action at a European level needs to be matched by difficult domestic decisions. The affirmation of the UK’s triple A credit rating, and the fall in our market interest rates, shows that it is possible to earn credibility with a convincing deficit reduction plan – as we saw this week as our plans began to take effect with the tough but necessary increases in value added tax to 20 per cent. But European economies also need both European Union and domestic measures to open up product markets, liberalise labour markets, support enterprise and reform welfare. That is certainly our focus in the UK as the next Budget approaches.